Product-based business models are being disrupted by service-based business model, new skills are needed in a world of smart products, and innovation success depends on the effectiveness of a company’s open ecosystem. 

This research examines how manufacturers are balancing two priorities: using digital to get legacy products to market quicker while investing in new smart products to capitalize on the servitization opportunity (deriving revenues from services).

To understand how leading manufacturers are approaching this transformation, we surveyed over 1,000 senior executives of large, discrete manufacturing organizations around the world across segments – including industrial manufacturing, aerospace and defense, medical devices, and high-tech. The key findings are:

  • We estimate that the size of the connected products prize globally will be $519 billion to $685 billion by 2020.
  • To capitalize on new opportunities, manufacturers will need to add non-physical skills (such as data and software competencies) to its traditional physical skills base.
  • At the same time, they will also need to reboot current approaches to legacy product innovation and development using a consistent source of information running across the product lifecycle – from engineering to manufacturing to services.
  • However, few companies are making significant progress in transforming their approach to innovation and engineering. Lagging organizations face multiple challenges: there is little data-sharing or “digital continuity“ across the product lifecycle, they are not making adequate use of digital technologies, they are not making effective use of their partner ecosystem, and they lack the people with the new skills needed.
  • We have identified a group of companies that have successfully transformed engineering and product innovation. They display a number of characteristics that represent best practices: they have a concrete digital vision and roadmap, make better use of the partner ecosystem, invest more in digital technologies, recruit talent in digital skill-sets, and create a culture of experimentation and agility.

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